A Japanese automaker Nissan Motor has begun international arbitration against India to seek more than $770 million in a dispute over unpaid state incentives, according to a person familiar with the matter and documents reviewed by Reuters.
A legal notice was sent to PM Narendra Modi last year in which Nissan sought payment of incentives due from the Tamil Nadu government as part of a 2008 agreement to set up a car manufacturing unit in the state. As per the notice, Nissan claims that the state officials have overlooked repeated requests for clearing the payment due in 2015. Even a plea by the company’s chairman Carlos Ghosn to PM Modi, sent in March last year, seeking federal intervention did not yield any results.
The notice to the state government of Tamil Nadu was sent by Nissan’s lawyers in June 2016. This notice was followed by more than twelve meetings between the federal and state officials and Nissan’s executives. This information was brought into the limelight by a person who is familiar with the matter.
The federal officials, from several ministries, have assured Nissan that payment would be made and it should not bring a legal case. But, in August, Nissan gave India an ultimatum to appoint an arbitrator and that the first arbitration hearing will be held in mid-December. A Nissan spokesperson said, “The company was committed to working with the government of India towards a resolution.”
A senior Tamil Nadu state official said the government hoped to resolve the dispute without having to go to international arbitration. “There is no discrepancy with regard to the amount due, and we are trying hard to resolve the issue,” the official told Reuters. The PMO (Prime Minister’s Office) did not respond to a mail seeking a comment on this matter.
International arbitration against India
The case has been brought against India for alleged violations of the Comprehensive Economic Partnership Agreement with Japan. This case is the among the latest string of international arbitration proceedings against the country by investors concerned about issues ranging from retrospective taxation to payment disputes.
India ranks the highest when it comes to pending cases filed against the nation. The number of pending cases stand at a staggering 20. This dispute between the Tamil Nadu government and the Japanese automobile manufacturer Nissan shows the challenges companies face in India and how local disputes can undermine the Modi government’s efforts to attract foreign investment. This will act adversely upon the foreign investment in the country, thereby affecting the generation of employment.
Nissan: Investments and dues
Several automakers including Ford and Hyundai Motor have set up their production in Tamil Nadu. This has earned Chennai a nickname, Detroit of South Asia. Nissan and its global alliance partner, French carmaker Renault, agreed to invest in setting up a car plant in Chennai in 2008. The then Tamil Nadu government promised several incentives like tax refunds.
Over seven years, Nissan and Renault have invested Rs 6,100 crore ($496 million) and set up a plant with annual production capacity of 480,000 vehicles, which entitled them to receive the incentives in 2015, according to the legal notice. Nissan said in 2008, that state incentive was critical to the viability and sustainability of the project.
Nissan claimed in the notice that it has an unpaid incentive of Rs 2,900 crore and Rs 2,100 crore in damages, plus interests and other costs. Nissan has less than 2% share of India’s passenger car market and it sells low-cost cars under its brand – Datsun. The company spokesperson also said that the company has created more than 40,000 direct and indirect jobs in India.